The day started with a hangover from Powell’s rug-pull; then the Bank of England hiked rates as expected, warned of a longer recession, and told the market its expectations were too hawkish; Challenger printed the highest number of job cuts since the pandemic lockdowns…

…then Services surveys showed the economic situation in the US is growing uglier at the same as unit labor costs grew at the fastest pace in over 40 years.

The result was stocks (mostly tech) and bonds lower in price, the dollar stronger, gold weaker, and Fed terminal rate expectations higher-er (to 5.20% in June 2023), as subsequent rate-cut expectations hawkishly declined (rates ‘higher for longer’ just as Powell wanted)…

Source: Bloomberg

On the day, The Dow and Small Caps desperately tried to stay unch, the S&P lost further ground, and Nasdaq was monkeyhammered (down 2%). Things traded sideways for much of the afternoon until the last 15-20 mins when everything went pear-shaped and puked…

The Nasdaq is down over 6% from the highs yesterday right before Powell started speaking (that’s over $800 billion in market cap)…

VIX closed lower today despite equity weakness…

…as hedges were monetized?…

As SpotGamma noted earlier, Powell seemingly didn’t give traders a reason to buy stock yesterday, but didn’t do enough to bring new levels of fear – there wasn’t enough hawkishness to lead traders to “pay up” for puts, as is clear from the fact that the S&P’s vol skew plunged to new record lows…

Source: Bloomberg

Treasuries extended their (price) losses today with the short-end dramatically underperforming (2Y +8bps, 30Y +1bps). We do note that bonds were bid during the US session however (until the EU close), having dumped overnight (during the EU session as Japan was closed)…

Source: Bloomberg

2Y yields at their highest since 2007

Source: Bloomberg

The 2s10s curve hit its most inverted level since 1982…

Source: Bloomberg

The dollar extended its surge off the dovish lows from yesterday…

Source: Bloomberg

As cable was pounded lower…

Source: Bloomberg

Gold extended yesterday’s losses today (ending down another 1%) but was bid during the US session…

Oil prices extended yesterday’s losses with WTI back down to $88…

And NatGas prices tumbled even more…

Finally, now that Powell has removed the hope once again, stocks have a long way to catch down to bonds’ reality…

Source: Bloomberg

And next week is chock-full of event risk with elections and CPI… and this should send a shiver of fear up market participants’ backs…

Source: Bloomberg

Something bad is going in the market’s pipes – as one wizened old credit trader remarked to us: “The thing about trying to break the economy is that you always break the market first…”

As The Fed has tightened monetary policy at its most aggressive pace in over 40 years, real rates in the US have soared (back into strong positive territory). Historically, that has reduced demand for gold (zero carry) but as the chart below, gold – while notably off its highs – has not cratered as much as some might have expected…

“With that weight of selling, I was a bit surprised gold wasn’t weaker,” said Ross Norman, chief executive officer of Metals Daily, an information portal focusing on precious metals.

But, thanks to a normally dry research report from The World Gold Council, perhaps we know why gold has not fallen as much…

First, as we noted recently, despite the recent price slide in paper precious metals markets, physical demand (and prices) remain extremely high…

But, as we detailed earlier today, central banks bought 399 tons of bullion in the third quarter, almost double the previous record, according to the World Gold Council.

The tricky thing is though, as Bloomberg reports, just under a quarter went to publicly identified institutions, stoking speculation about who the mystery buyers were that waved in the other 300 tonnes of gold in Q3?

While most central banks inform the International Monetary Fund when they buy gold to supplement their foreign exchange coffers, others are more secretive.

Few have the capacity to undertake the third-quarter buying spree, enough to soften the blow from investors selling bullion as the Federal Reserve hiked interest rates.

Here are some possibilities as to who these mysterious bullion whales could be… (via Bloomberg)

China

The world’s No. 2 economy rarely discloses how much gold its central bank is buying. In 2015, the People’s Bank of China revealed a nearly 600-ton jump in its bullion reserves, shocking market watchers after six years of silence.

The country hasn’t reported any change in its gold hoard since 2019, fueling speculation it may have been buying under the radar.

Trade data show the country has been taking in vast amounts of bullion. China has imported 902 tons of gold so far this year, already surpassing last year’s total. That’s on top of the more than 300 tons the country’s mines typically produce each year.

And while domestic demand has been strong, with citizens buying some 601 tons through the third quarter, it’s on track to fall short of 2021 levels. Earlier in the year, Covid-19 lockdowns hampered purchases of jewelry and bullion in one of the world’s top consumers.

For China, the need to find an alternative to dollars, which dominate its reserves, has rarely been stronger. Tensions with the US are high following measures taken against its semiconductor firms, while Russia’s invasion of Ukraine has demonstrated Washington’s willingness to sanction central bank reserves.

Russia

Russia is the world’s second-biggest gold mining nation, typically producing more than 300 tons a year. Before February 2022, it exported metal to trade centers like London and New York, but also to nations in Asia.

Since the invasion of Ukraine, Russia’s gold has no longer been welcome in the West, while China and India have been reluctant to import huge quantities. That raises the possibility the central bank could step in to buy those supplies, but Russia’s overall foreign exchange reserves, including gold, have declined this year.

Russia’s reserves of dollars and euros were frozen by sanctions, making it less attractive for the central bank to add to them. Moreover, it doesn’t break out its holdings of gold separately.

The nation has been a massive buyer of gold in the past, spending six years accumulating bullion before stopping at the onset of the pandemic. Russia said in February, after the invasion of Ukraine, that it was ready to buy gold at a certain price, but Deputy Governor Alexei Zabotkin said last month that purchases were no longer practical as they would push up money supply and inflation.

Oil Exporters

Few nations have done better out of this year’s energy crisis than Gulf oil exporters. Saudi Arabia, the United Arab Emirates and Kuwait have all reaped a windfall, and some have been plowing cash into foreign assets through sovereign wealth funds.

They may have looked to gold to diversify. Saudi Arabia has the biggest gold hoard in the Arab world, but hasn’t reported a change in its holdings since 2010.

Back then a “difference in accounting” led to its reserves doubling to 323 tons.

India

India’s central bank has made large gold purchases before, buying 200 tons from the International Monetary Fund in 2009. Since then it’s tended to buy more gradually, while providing timely updates to the market.

It may have shied away from splashing out on gold this year, given the pressure on its currency. That’s been exacerbated by strong imports of precious metals for its consumer sector in recent months.

So, was it China, Russia, The Saudis, or India? And why?

Perhaps they realize where this all leads and are taking action, as we detailed previously, gold is the most resilient asset to own if the Federal Reserve continues to raise rates, while stocks are the worst place to be, with non-dollar currencies falling between the two.

Gold has had an empirical duration of just over three years in the current Fed cycle, compared with stocks at 7.1 years. The non-dollar currencies that make up the G-10 have seen a duration of 5.3 years.

Duration measures the percentage change of an asset in reaction to a 1 percentage point shift in interest rates.

Gold is still hovering near its low for this cycle of $1,615 an ounce, a 12% decline since the start of the year that has come as the Fed raised its benchmark interest rate by 300 basis points, with another 75 basis points priced in from this week’s policy review.

Non-dollar G-10 currencies have seen an average duration of 5.3 years in the current cycle, highlighting their sensitivity to any perceptible shift in interest-rate differentials.

Simply put, the analysis on duration shows that gold is a relatively safe place to be in the currency cycle… and maybe the whales are moving

Or, more ominously, perhaps the mystery whales know something (or fear something) that western nations prefer not to consider about the new world order?

Authored by Alex Kimani via OilPrice.com,

An article published on the blog of international Arabic news television channel Al Arabiya on Thursday claims that an Iran state-linked Telegram channel has posted a video purportedly showing a simulated attack on Saudi Arabia. 

Iran releases threatening footage of attacks on Saudi oil facilities using Shahed-136 drones
pic.twitter.com/mFcJn18FrO

— Russian Market (@runews) November 2, 2022

Al Arabiya says the video was posted by an IRGC-affiliated Telegram channel with over 350,000 subscribers, and shows a simulated drone attack against Saudi Arabia national oil company, Saudi Aramco’s, oil facilities.

On Tuesday, the Wall Street Journal reported that Saudi Arabia had shared intelligence with Washington warning of an imminent attack from Iran against the Kingdom. Iran has rubbished these claims, terming reports of Iranian threats against Saudi Arabia as “baseless accusations.”

If true, the alleged imminent attacks have a recent precedent. 

Three years ago, Yemen’s Iran-backed Houthis launched a drone attack on Aramco oil facilities in Eastern Saudi Arabia, cutting Saudi oil production in half and taking off a good 5% of global supply off the market. The claims add a fresh twist to the Russian war on Ukraine considering that Russia has been using Iranian drones in Ukraine. Just a day ago, CNN reported that Iran is getting ready to send ~1,000 additional weapons, including more attack drones and surface-to-surface short range ballistic missiles, to Russia.

The new alleged intelligence of a potential Iranian attack on Saudi oil facilities comes as the U.S. is in the middle of a heated debate about defense provisions for Saudi Arabia. Earlier in October, Democrats were calling for the suspension of transfers of Patriot missiles to Saudi Arabia, as relations continued to sour. 

Shortly afterwards, U.S. President Joe Biden condemned the decision by OPEC+ to cut oil production by 2 million barrels per day, lambasting Saudi Arabia and the cartel for taking sides with Russia. Biden vowed to “consult with Congress” on ways to “reduce OPEC’s control over energy prices,” bringing the specter of  the NOPEC bill, once again, to the forefront.

Turkey’s annual inflation has hit its highest level in 24 years, worsening the cost-of-living crisis facing the country, even as political opposition parties claim that real numbers are worse than official figures.

The 12-month Consumer Price Index (CPI), which measures inflation on an annual basis, hit 85.51 percent in October, according to a press release from the Turkish Statistical Institute on Nov. 3. This is the seventeenth consecutive month that inflation has risen in Turkey. It is up by 3.54 percent from the previous month. The lowest inflation rate was in the communication and education sectors, which both rose by over 30 percent.

The transportation sector saw the highest annual inflation, at 117.15 percent; followed by food and non-alcoholic beverages at 99.05 percent; furnishings and household equipment at 93.63 percent; and housing at 85.17 percent.

Source: Bloomberg

But, as Naveen Anthrapully reports at The Epoch Times,  despite the high numbers, opposition members and many citizens question the accuracy of the data, and insist that the actual inflation rate is even higher.

Istanbul city annual retail inflation accelerates to 108.77% in October from 107.42% in September, according to data published by the Istanbul Chamber of Commerce (thats basically 10% every month!).

According to independent economists from Turkey’s ENAG research institute, the 12-month CPI was at 185.34 percent in October. On a monthly basis, CPI is calculated to have risen by 7.18 percent for the month.

Opposition leader Kemal Kilicdaroglu insists that the Turkish government is hiding real inflation data due to the salary it owes to public employees.

“Why does the TUIK [statistics agency] disguise the real figure?” he asked last month, according to RFI.

“Because when it gives the real figure, the pensions will be determined accordingly. Workers’ wages will be determined accordingly. Civil servants’ salaries will be determined accordingly. If you show it low, it will give a low raise.”

Erdogan’s Contradictory Policies

Many economists blame Turkish President Recep Tayyip Erdogan’s policies for having pushed the country into an inflation crisis. While traditional economic thought posits that raising interest rates will help control inflation, Erdogan believes that higher rates will result in higher prices.

As such, the Turkish president has been pushing to lower interest rates. In October, the country’s central bank slashed interest rates to 10.5 percent, the third straight monthly reduction. Erdogan has also indicated that he plans to implement more rate cuts and bring down rates to single digits.

Economists point out that the policy of lowering interest rates is hurting the national currency lira and adding upward pressure on inflation.

Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in an analyst note that the Turkish central bank will continue to remain under pressure from the president to follow a “looser policy,” according to CNBC.

“Although the CBRT [Central Bank of the Republic of Turkey] said it will deliver one more 150 basis-point interest rate cut at its meeting later this month, there is a risk of further easing beyond that, adding more downward pressure onto the lira,” he said.

…new record lows.

On Thursday North Korea fired several more ballistic missiles, including a likely ICBM – according to international reports, which sent Japanese citizens into bomb shelters. 

This comes after the north fired off 23 missiles of different types on Wednesday, which marks the most in a single day. By some estimates, at least 27 missiles have been launched in the last 24 hours. All of this brings the total missiles fired so far this year to at least 60. 

“The projectiles, including a suspected intercontinental ballistic missile, have triggered alerts, prompting some residents to seek shelter in two countries — South Korea and Japan — on both days,” according to one US media report.

Japan’s Prime Minister Fumio Kishida has condemned the launches as “intolerable.” Inbound projectile alerts had been issued for three regions of Japan on fears the ICBM was headed toward or over Japan.

However, the ICBM launch may have failed:

The largest of Thursday’s launches, however, “is presumed to have ended in failure,” the South Korean military said.

NPR has cited a South Korean former defense official to say that Pyongyang’s strategy seems to be to sow confusion and put US allies on edge over how to defend against a potential attack: 

“North Korea staged a very threatening provocation at a magnitude we’ve never seen before,” says Kim Jeong-dae, a former defense official and visiting professor at Yonsei University in Seoul.

“First, they launched missiles from all around the country — east, west, south, north,” he explains. “This seems intended to negate our strategy of striking the source of attack.”

Air siren sounding in Miyagi, Japan as Kim Jung shooting his rockets about again. pic.twitter.com/7zFTyxjL2h

— RawNews1st🎥📰 (@Raw_News1st) November 2, 2022

The US is seeking for allies and other regional major powers to increase pressure on Pyongyang: “This action underscores the need for all countries to fully implement DPRK-related UN Security Council resolutions,” said State Department spokesman Ned Price in the wake of the fresh launches.

North Korea has warned against ongoing joint US-South Korea war games taking place this week, calling the US military presence a threat to regional security and stability.

By Peter Tchir of Academy Securities

The Fed and Powell

The statement added language highlighting that the Fed would take into consideration the cumulative amount of hikes and the lag effect of hikes. That was viewed positively by myself and markets. It was the first nod to the “lag effect” we’ve seen, which was taken to mean the Fed is dialing back on their hikes.

The press conference was used to disabuse the market of that notion. The press conference was taken as hawkish for a few reasons:

• Potentially higher terminal rate (this was new).

• Higher rates for longer (not sure this was new).

• Willingness to overshoot because they can cut if needed (this was new).

• Little progress on inflation (from the group that transitory all of last year).

• Mention of CPI (which is highly likely to overstate rent for the coming months because of how it was calculated and concerns those of us who don’t like reliance on data that seems out of sync with what is occurring in real time).

Powell killed the rally, took stocks and bonds down hard and we are seeing that continue overnight and into the morning session.

What Now?

The “buy everything” rally has pulled back, with the S&P 500 back to 3,745 (where it was on 10/21. The 10-year yield is back to 4.2%, just below the 4.22% on 10/21.

We will get more Fed speakers. They will “clarify” the message.

The “hope” for bulls (and I am still in that camp, though having to re-think it after yesterday’s reversal which highlighted positioning that wasn’t extremely bearish) is data dependence.

Bulls need to see progress on the inflation front in the official data.

Getting weaker than expected inflation data is my base case. While the Fed doesn’t see it, many economists and companies see it.

Whether that can show up in the data the Fed watches most closely is the question as OER for example, incorporates old data and is catching up to the rent inflation it missed from almost a year ago.

The least concerning issue is that Powell isn’t seeing inflation as his track record on predicting inflation has been mediocre at best. (difficult not to wonder what things would look like had that cut QE last spring and started hiking last fall, but no use crying over spilled milk).

Most concerning is the renewed pressure on the Euro and the Yen. FX volatility is gut wrenching for investors, companies and even countries. Some viewed yesterday’s changes in the statement as a subtle sign that the Fed was paying attention to concerns from other countries that the strong dollar policy was hurting them. Well, we are right back to that.

With yields back to their highs and threatening to break into uncharted territory, aided by potential foreign selling and it all being so fresh in our minds that we went weeks without treasuries catching a bid on their march higher, it is difficult to be bullish anything here.

On the other hand, for the first time since Jackson Hole, the Fed seems data dependent and is not on a pre-set course, which should be bullish (but is concerning that it hasn’t been bullish since the presser).

Basically leaves me licking some wounds, reducing position size, and trying to re-evaluate whether there is hope for the everything rally? I think there is, but price action is telling me to tread extremely carefully.

Walmart Inc. announced that a basket of Thanksgiving items at retail stores would have prices rolled back to 2021 levels through the holiday season amid the worst inflation in forty years. 

“Saving money is a top priority for our customers right now, so this year, we’re removing inflation on an entire basket containing traditional Thanksgiving items,” Walmart wrote in a press release. 

The items to be rolled back to last year’s prices include the following: “… turkey, ham, potatoes and stuffing … convenience items are there too, like ready-to-heat mac and cheese or freshly made pumpkin pie.” 

“We’re proud to offer customers this year’s Thanksgiving meal at last year’s price so families don’t need to worry about how they’ll set their holiday table,” the largest retailer in the country said. 

These deals will only last through Dec. 26, and the company offered a link to a landing page on their website titled “This year’s meal at last year’s price*.”

Dozens of items were rolled back by the retailer. One of the most significant rollbacks was 50% off whole turkeys. 

“Our approach this holiday helps make sure customers don’t have to compromise on what matters: we’re keeping prices low and our assortment strong to serve them all season long,” Walmart concluded. 

In the latest inflation report, Headline and Core CPI printed hotter than expected — both remain at four-decade highs. 

Food inflation has been one of the most shocking increases over the past year. 

High inflation has crushed household finances as real wages are negative for the 18th consecutive month…

Meanwhile, the personal savings rate has tumbled to multi-decade lows at 3.1%, just shy of the record low of 3.0%…

And some experts are concerned about the pace of growth in consumer credit as debt loads for households soar as their wages can’t cover added costs of food, shelter, and energy. 

The stimulus checks are long gone. Savings are being depleted. And the largest retailer in the country is rolling back food prices for the holiday season because it knows consumers are immense financial pressures. 

But, but, the economy is “strong as hell”? 

By Michael Every of Rabobank

The party is ending / The Party is starting

First, the important good news: the Ukraine grain deal is back on after Russia backed off. As our grains maven Michael Magdovitz comments, the Kremlin phone was probably ringing off the hook… and not from the West, but from hungry Russian allies. Now to the bad news.

The party is ending…

…and all those expecting the Fed to shift in a dovish direction yesterday are being shown up as a bunch of pivots.

The Fed raised 75bp to 4.00% yesterday, as expected. There was an initial market attempt to rally at language suggesting they were aware policy acts with a lag, which sounded pivot-y. Then Powell spoke, and crushed those hopes. True, he flagged the pace of rate hikes might slow from its breakneck pace: but he made it abundantly clear smaller rate hikes would continue for longer than many expected. Moreover, when a journalist pointed out to him that stocks were rising after his latest move, he deliberately underlined that if the FOMC had known in September what it knows now, it would have plotted its dots higher for where Fed Funds will peak. That means a higher terminal rate ahead –the market’s assumption is now 5.10% vs. 4.85% recently– and a deliberate attempt to jawbone markets lower, not higher.

You can make the argument that this is about a wage-price spiral, which Powell said he doesn’t see, despite the ADP report yesterday suggesting nominal wage growth is up to 7.7% y-o-y; or that this is about overheating; or that Powell is wrong, because things are cooling fast; or that he hates financialisation and loves the industrial economy – as the FT flags that the US will be sucking in EU industry crippled by rising power bills; or, relatedly, that this is about the geopolitics of power, and of commodities vs. the global role and value of the US dollar; or any combination of the above. It actually doesn’t matter, because the key conclusion is still the same:

Powell doesn’t want to see financial conditions ease. He doesn’t want to see higher equities. He doesn’t want to see lower bond yields. He doesn’t want to see a weaker dollar. The old party paradigm is over, much as markets refuse to accept it.

The Party is starting…

…and all those expecting a shift in a bullish stimulus direction are also being shown up as a bunch of pivots.

Speaking earlier yesterday at Hong Kong’s financial shindig, the UBS CEO stated he doesn’t read the US press, only the Chinese, and that global banks are “very pro-China” despite the 20th CCP Congress reiterating its belief in a Marxism-Leninism which says, “The Capitalists will sell us the rope with which we will hang them.” One also has to wonder, if global banks are pro-China, but Western politicians are increasingly not, where does that logically leave said politicians vis-à-vis global banks?

True, money-over-ideology worked nicely for both sides for years. Yet it also did under Lenin’s New Economic Policy in the USSR in the 1920s until that ended with Stalinism, as Joe saw the 1940s coming, and decided to prepare. As unaware of that history as CEOs but perhaps indirectly echoing it, Bloomberg’s Shuli Ren bewails in ‘Hong Kong Bankers Fear for Their Careers’ that: “Xi, for one, doesn’t see bankers offering much value. Six of the 13 new members of the Politburo have backgrounds in science and tech. He Lifeng, widely tipped as the next economic tsar, is not a member of the Politburo Standing Committee, China’s most powerful decision-making body. For decades, financiers in Hong Kong have been China’s biggest cheerleaders and its bridge to developed nations. They advocated for economic growth and argued for a better relationship between the two superpowers when no one else was. Even they’re losing faith in Xi’s China.”

Indeed, Leland Miller of the China Beige Book notes despite screenshots(!) about Covid-Zero being zeroed (as fresh lockdowns hit Shanghai and the world’s largest iPhone factory), past high GDP growth is not coming back – for ideological reasons. “It is over because the Chinese government has identified a continuation of this economic growth model as a vulnerability to CCP rule,” he states. They know the model, which they actually borrowed or co-opted from the West, no longer works; they fear what happens if they add yet more debt, or try outright QE, or monetisation. The result is the structural growth slump we now all see, and few saw coming.

It is true that Soviet economies, and China pre-reform, had soft budget constraints, monetised debts, and repressed inflation. However, today’s China reads history and Marx carefully. Contrary to common misperception, Marx was opposed to the inflation of fiat currency as well as the stupidity and revolution-inducing inequality of “fictitious capital”, preferring the gold standard. Lenin ran dual currency systems in the USSR, one gold backed, one fiat, with dual circulation (external, internal): the gold one won out as long as Lenin was around.   

China doesn’t want to see more financialisation or higher house prices. It doesn’t want to see higher equities for equities’ sake. It doesn’t want to see lower bond yields for bonds’ sake. It won’t be able to see a stronger CNY. The old Party paradigm is returning, much as markets refuse to accept it.

The Social Democrat party is starting to end…

…and Germans look like a bunch of pivots regarding a shift towards China.

Despite our new geopolitical era, Berlin still wants to do more trade with Beijing. Chancellor Scholz, now in China, not only ignored an open letter from 186 Chinese intellectuals and dissidents asking him not to go, but has stressed he is looking to “collaborate” wherever possible. There was a waiting list of 100 top German firms wanting to tag along – a dozen did. In the eyes of critics, including the EU Chamber of Commerce in China, this makes Germany look like a particularly stupid dinosaur gawping up at a falling meteor and wondering if it wants to be friends.

Germany’s problem is not just what is happening in China, which it takes a “global bank” view of, but what is happening in an EU looking at this latest mercantilism with very mixed feelings after Berlin’s self-serving energy-price subsidies and relative lack of action re: Ukraine.

Moreover, the US selling Germany LNG and protecting it is watching too. Do you think there might be more or less desire to pull German industrial supply chains into the cheap-energy US economy now? Or to prevent German capital stock in China exporting back to the US? USTR Tai just made an offer to the EU to join them in green industrial policy, subsidies, and presumably future tariffs against China. Say no and see what happens. And meanwhile the Fed is ensuring global demand for German goods tanks – just as the Germans don’t have any of their own tanks.

The Social Democrat Party paradigm is over, much as it refuses to accept it.

The Twitter party is ending…

…and the latest headline in a never-ending sequence from this bunch of pivots is that we’ll get an edit button – and half of all jobs there are to go. Hey! That means lower US rates, right?!

Via SchiffGold.com,

Proving that most people have no idea what causes inflation, the majority of Americans in a recent poll said they want the federal government to hand out stimulus checks to combat inflation.

In the poll commissioned by Newsweek, 63% of the respondents said they agreed that the feds should issue new stimulus checks to tackle inflation. Forty-two percent said they “strongly agree” while only 18% disagreed. Fifteen percent said they neither agreed nor disagreed.

The results of this poll reveal the effects of redefining “inflation.”

Properly defined, inflation is an increase in the money supply. Rising consumer prices are one symptom of inflation. But the government has effectively redefined inflation as “rising prices.” In effect, most people think a symptom of inflation is inflation. As a result, most people have no clue where inflation comes from.

This was on purpose.

Of course, when you accurately define inflation, it becomes crystal clear who is to blame — the Federal Reserve and the US government.

Economist Ludwig von Mises explained exactly why this redefinition of inflation is so pernicious.

People today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”

Today, people aren’t even asking the government to fight inflation. They just want Uncle Sam to hand them money in order to mitigate the pain of rising prices.

Ironically, stimulus during the pandemic is one of the factors causing the high prices today.

The Federal Reserve pumped over $3 trillion into the economy after the 2008 financial crisis through quantitative easing.

It also stimulated credit creation with 0% interest rates that lasted more than a decade. During the pandemic, the Fed doubled down, pumping nearly $5 trillion more into the economy and dropping rates to zero again.

The federal government exacerbated the situation during the pandemic by handing out three rounds of stimulus money, along with trillions in other aid.

This enabled consumers to keep spending even though they were sitting at home playing Xbox and not producing anything. With more dollars chasing fewer goods and services, a massive spike in consumer prices was entirely predictable.

And that’s exactly what we got. And it hasn’t abated. October CPI came in at 8.2% on an annual basis.

Meanwhile, wages aren’t keeping up with rising prices. Real average hourly earnings decreased by 3.0% from September 2021 to September 2022.

It’s no wonder people are clamoring for more stimulus. But it will only make the situation worse. In the first place, it will put more dollars in consumers’ hands without any corresponding increase in the supply of goods and services. That’s a recipe for even more price increases.

Furthermore, the US government doesn’t have any money to hand out. It just ran a $1.3 trillion budget deficit. In order to give everybody stimmy checks, the government would have to borrow more money. The Treasury market is already reeling due to rising interest rates. Ultimately, the Federal Reserve would almost certainly have to monetize that new debt with more quantitative easing. The only other alternative would be to let interest rates soar, making the interest payment on the debt even higher.

Stimulus checks might provide a little temporary relief, but they would ultimately make inflation worse and prices would rise even higher in the future. But most Americans don’t understand that. They don’t understand inflation. They just know they’re struggling and they want government to “make it better.”

The problem is the government never makes it better. It always makes things worse. And it’s important to remember you never get more government for free. You always pay.

You’re paying for your COVID stimmy checks today through the inflation tax. If you get another stimmy check tomorrow, that will mean an even bigger inflation tax increase down the road.

With Twitter set to Thanos half its employees tomorrow, the axe is now swinging hard across Silicon Valley, where moments ago Bloomberg reported that one of the world’s most valuable startups, Stripe, will cut 14% of its entire workforce, some 1000 jobs returning headcount to the almost 7,000 total from February, as the company seeks to slash costs during the coming recession. The news was shared with the rest of the company in an email from co-founders Patrick and John Collison who vowed to trim expenses more broadly as they prepare for “leaner times.”

“We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown,” the Collison brothers said in the email. “We grew operating costs too quickly. Buoyed by the success we’re seeing in some of our new product areas, we allowed coordination costs to grow and operational inefficiencies to seep in.”

The Collisons said the headcount changes wouldn’t evenly impact the business, noting that the recruiting business would be disproportionately impacted since the company plans to hire fewer people next year. Departing employees will receive at least 14 weeks of severance, and the brothers vowed to pay annual bonuses and unused paid time off for all workers affected by the cuts.

Stripe and its money-losing publicly traded peers have seen their valuations crater as the growth in online spending slowed in the aftermath of the pandemic, just as supply-chain disruptions and once-in-a-generation inflation also hurt activity. According to Bloomberg, the company in July told staffers that an internal valuation for the company dropped to about $74 billion, compared to the $95 billion it received in its most recent fundraising.

“Stripe is not a discretionary service that customers turn off if budget is squeezed,” the Collisons said. “However, we do need to match the pace of our investments with the realities around us. Doing right by our users and our shareholders (including you) means embracing reality as it is.”

Translation: here’s a pink slip, consider it for the “greater good”. As for the November and December payrolls report, it will take some seriously seasonal adjustment magic to avoid a -200K (or worse) print.